BSE's success could restart IPO engine

High investor interest makes i-bankers launch more share sales despite a volatile secondary market

A positive response to BSE Ltd’s initial public offering (IPO) has instilled confidence into the primary market, which has seen a two-month lull period. Investment bankers say at least half a dozen companies could launch their public offers immediately after the Budget. 

Security solutions provider Security and Intelligence Services, D-Mart hypermarket chain operator Avenue Supermarts, infrastructure firms GR Infraprojects and Shankara Building are some of the companies aiming to hit the market in the next few weeks. Besides these, depository company Central Depository Services Limited (CDSL) and the country’s largest stock exchange National Stock Exchange (NSE), too, are planning to launch their IPOs immediately after obtaining market Securities and Exchange Board of India (Sebi)’s nod. Investment bankers say another Rs 20,000 crore could be raised through IPOs in the remaining part of this financial year.

Companies have been abstaining from the IPO market due to demonetisation and capital outflows on account of hardening of the bond yields in the US. However, BSE’s Rs 1,240-crore IPO managed to generate demand worth around Rs 45,000 crore, signalling strength in the primary market despite volatility in the secondary market. 

“The pipeline for IPOs looks positive despite the detractions witnessed in the recent past, including Brexit and demonetisation. Most of the companies planning for IPOs are established players and would offer a lot of value to the investors,” said Salil Pitale, managing director, Investment Banking, Axis Capital.

Calendar year 2016 was the best in seven years for IPOs, as fundraising through initial share sales touched Rs 30,000-crore mark. On the other hand, the secondary markets yielded flattish returns during the year. “A lot of companies postponed their IPO plans in the past few days, as there was uncertainty about the impact of demonitisation. Third quarter earnings and the coming Budget will bring more clarity,” said Pranav Haldea, managing director, Prime Database.

Investment bankers also say IPOs from new sectors like stock exchanges or security companies could see good demand given their under-representation in the listed space. After a long time, markets could witness listing of two public sector companies — HUDCO and Cochin Shipyard as part of the government’s divestment drive. S Chand, a publishing house, is also likely to try its luck at the primary markets this year.

“We are currently in a very interesting phase of primary markets. The shift of economy from informal to formal will provide opportunities to companies from various emerging sectors to come up with IPOs in the days to come. This would also create great opportunities for the investors to be a part of the growth story as Indian markets get aligned to GDP,” said Munish Aggarwal, director, Equirus Capital.